China’s Stimulus Produces 7.9 Percent Growth. So It Worked?

The Wall Street Journal ran a story today that casts further doubt on the crafting of the U.S. stimulus bill enacted in February (and which the NAM supported), “China’s GDP Rise Prompts a Debate.”

BEIJING — China’s government said its economy’s rebound remains uneven and unstable, even as a surge in growth has prompted economists to debate whether officials need to start cooling things down.

The government’s eight-month-old stimulus program helped boost China’s gross domestic product growth to 7.9% in the second quarter, the National Bureau of Statistics reported Thursday, up from 6.1% in the first quarter.

But Li Xiaochao, a spokesman for the bureau, said the effects of the upturn haven’t been felt by all parts of the economy. “Most people feel there has already been a recovery, but it’s uneven and there …

The rest is behind a subscription wall. But the teaser raises an obvious question: Why was the Chinese stimulus more successful in stimulating the economy than the U.S. package? USA Today’s headline from November provides a clue: “China’s economic stimulus plan targets its infrastructure.”

HSBC China chief economist Qu Hongbin said the figures from China, the world’s second-biggest economy, confirmed the bank’s expectation of “a V-shaped recovery” starting in the June quarter. HSBC yesterday raised its full-year GDP growth forecast to 8.1 per cent, rising to 9.5 per cent next year.

Mr Qu said the stimulus-led recovery could be sustained by long-term spending on infrastructure, which would require massive amounts of raw materials, such as steel and cement.

“Construction work on most of these infrastructure projects, once started, will typically last two to three years,” he said. “Therefore, as long as there are enough projects in the pipeline, the infrastructure investment is likely to be more sustainable than many expect.”

Lessons to be learned, especially as Congress considers a new highway bill.